Today's executives are faced with a host of unprecedented changes and trends. These changes include the need to be global, the need to grow without using more capital, the need to respond to the threats and opportunities of the economy, the aging of the workforce, reducing costs and battling for consumer thinking.
Part of these current trends is Outsourcing, which is when an organization transfers ownership of a business process to a supplier. It is based on the detachment of some activity, which is not part of the main skills of an organization, to a specialized third party. By main or central skills is understood all those activities that form the core business of the company and in which there are competitive advantages over the competition.
Next, important aspects will be developed, such as some definitions of Outsourcing, types, reasons why to carry it out, advantages and disadvantages of the same as well as the strategies and risks involved in said process. Finally some notes, questions and final ideas on the subject are highlighted. In short, Outsourcing is an extremely interesting topic that, if applied well, can dramatically reduce the direct costs of a company.
outsourcing-business-strategy-of-the-present-and-futureDEFINITIONS AND CONSIDERATIONS
Outsourcing is a current trend that has been an important part of administrative decisions in recent years in all companies worldwide.
Outsourcing has been defined in various ways. They can be mentioned:
- It is when an organization transfers ownership of a business process to a supplier. The key to this definition is the transfer of control aspect, which is the use of resources outside the company to carry out activities traditionally performed by internal personnel and resources. It is a management strategy by means of which a company delegates the execution of certain activities to highly specialized companies. It is to contract and delegate in the long term one or more non-critical processes for a business, to a more specialized provider to achieve greater effectiveness that allows directing the best efforts of a company to the neuralgic needs for the fulfillment of a mission. Action of resorting to an external agency to operate a function that was previously carried out within the company.It is the method by which companies release some activity, which is not part of their main skills, to a specialized third party. By main or core skills is understood all those activities that form the core business of the company and in which there are competitive advantages with respect to the competition. It basically consists of outsourcing related resources, while the organization is exclusively dedicated to the reason or basic activity of your business. Products and services offered to a company by independent suppliers from anywhere in the world. Outsourcing is more than a contract of people or assets, it is a contract for results.By main or core skills is understood all those activities that form the core business of the company and in which there are competitive advantages with respect to the competition. It basically consists of outsourcing related resources, while the organization is exclusively dedicated to the reason or basic activity of your business. Products and services offered to a company by independent suppliers from anywhere in the world. Outsourcing is more than a contract of people or assets, it is a contract for results.By main or core skills is understood all those activities that form the core business of the company and in which there are competitive advantages with respect to the competition. It basically consists of outsourcing related resources, while the organization is exclusively dedicated to the reason or basic activity of your business. Products and services offered to a company by independent suppliers from anywhere in the world. Outsourcing is more than a contract of people or assets, it is a contract for results.while the organization is exclusively dedicated to the reason or basic activity of its business. Products and services offered to a company by independent suppliers from anywhere in the world. Outsourcing is more than a contract of people or assets, it is a contract for results.while the organization is exclusively dedicated to the reason or basic activity of its business. Products and services offered to a company by independent suppliers from anywhere in the world. Outsourcing is more than a contract of people or assets, it is a contract for results.
In a context of globalization of markets, companies must dedicate themselves to innovate and concentrate their resources on the core business. For this reason, Outsourcing offers an optimal solution.
Basically it is a modality, according to which certain organizations, groups or people outside the company are hired to take charge of "part of the business" or a specific service within it. The company delegates the management and operation of one of its processes or services to an external provider (Outsoucer), in order to streamline it, optimize its quality and / or reduce its costs.
Thus, it transfers the risks to a third party that can provide guarantees of experience and seriousness in the area. In a sense, this provider becomes part of the company, but without being formally incorporated.
Outsourcing methodology is part of managerial decision-making, it includes the steps of the entire administrative process of evaluation, planning and execution, helps to plan and set business expectations and indicates those areas where specialized knowledge is needed to carry out the different organization activities.
For this, it is necessary to move from a traditional supply approach that consists of a set of activities that allows identifying and acquiring the goods and services that the company requires for its operation from internal or external sources to a strategic vision focused on increasing the value and the quality of the company's products.
It is necessary to clarify that Outsourcing is different from business and contracting relationships, since in the latter the contractor owns the process and controls it, that is, he tells the supplier what and how he wants the products or services to be performed and manufactured purchased so the supplier cannot vary the instructions in any way. In the case of Outsourcing, the buyer transfers the property to the supplier, that is, he does not instruct the supplier on how to perform a task but rather focuses on communicating what results he wants and leaves the supplier the process of obtaining them.
Examples:
In this case, the company that requires the service requests the cleaning service from the supplier company. Then it is the supplier who determines when and how to clean, which detergents to use and how many people are needed for it.
HISTORY OF OUTSOURCING.
Outsourcing is a practice that dates back to the beginning of the modern era. This concept is not new, as many competitive companies used it as a business strategy. At the beginning of the post-industrial era, competition begins in global markets.
After the Second World War, companies tried to concentrate as many activities on themselves as possible, so as not to have to depend on suppliers. However, this strategy, which in principle was effective, became obsolete with the development of technology, since the departments of a company could never stay as updated and competitive as independent agencies specialized in an area did, in addition, their capacity of service to accompany the growth strategy was insufficient.
The concept of Outsourcing began to gain credibility at the beginning of the 70's, focused, above all, on the areas of technological information in companies. The first companies to implement Outsourcing models were giants like EDS, Arthur Andersen, Price Waterhouse and others.
Outsourcing is a term created in 1980 to describe the growing trend of large companies that were transferring their information systems to suppliers.
In 1998, Outsourcing reached a worldwide turnover of one hundred billion dollars. According to recent studies, this amount will skyrocket to $ 282 billion.
WHY USE OUTSOURCING?
Until a while ago this practice was considered as a means to reduce costs; However, in recent years it has proven to be a useful tool for the growth of companies for reasons such as:
It is cheaper. Reduction and / or control of operating expenses.
Business concentration and more appropriate disposal of capital funds due to the reduction or non-use of the same in functions not related to the reason for being of the company.
Access to cash. It may include the transfer of assets from the customer to the supplier.
Easier handling of functions that are difficult or out of control.
Availability of highly trained personnel.
Greater efficiency.
All of this enables the company to focus broadly on business issues, have access to world-class capabilities and materials, accelerate the benefits of reengineering, share risks, and allocate resources for other purposes.
ADVANTAGES OF OUTSOURCING
The contracting company, or buyer, will benefit from an Outsourcing relationship since it will achieve, in general terms, a "Greater Functionality" than it had internally with "Lower Costs" in most cases, by virtue of the economy of scale. obtained by contracted companies.
In these cases the company is exclusively concerned with defining the functionality of the different areas of its organization, leaving the Outsourcing company to deal with technological decisions, project management, Implementation, administration and operation of the infrastructure.
The following benefits or advantages of the Outsourcing process can be mentioned:
Manufacturing costs decline and investment in plant and equipment is reduced.
It allows the company to respond quickly to changes in the environment.
A raise in the company's strong points.
Help to build a shared value.
It helps define the company.
Build a long-lasting competitive advantage through rule change and greater organizational reach
Increase commitment to a specific type of technology that improves delivery time and quality of information for critical decisions.
It allows the company to have the best of technology without the need to train organizational personnel to handle it.
It allows to have information services quickly considering the competitive pressures.
Application of talent and organization resources to key areas.
Helps face changes in business conditions.
Increase in the flexibility of the organization and decrease in its fixed costs.
DISADVANTAGES OF OUTSOURCING
As in any process, there are negative aspects that are an integral part of it. Outsourcing is not exempt from this reality.
The following disadvantages of outsourcing can be mentioned:
Stagnation in terms of innovation by the external supplier.
The company loses contact with new technologies that offer opportunities to innovate products and processes.
For the external supplier to learn and have knowledge of the product in question, there is the possibility that he will use them to start his own industry and become a supplier to a competitor.
The cost saved with the use of Outsourcing may not be as expected.
Rates increase the difficulty of re-implementing activities that once again represent a competitive advantage for the company.
High cost in the change of supplier in case the selected one is not satisfactory.
Benefit reduction
Loss of control over production.
AREAS OF THE COMPANY THAT MAY GO TO OUTSOURCING
In what has become a growth trend, many organizations are making the strategic decision to put some of their functions in the hands of specialists, allowing them to focus on what they do best - maximizing performance while minimizing costs.
The Outsourcing process not only applies to production systems, but also covers most areas of the company. The most common types are shown below.
- Outsourcing of financial systems Outsourcing of accounting systems Outsourcing of Marketing activities Outsourcing in the Human Resources area Outsourcing of administrative systems Outsourcing of secondary activities
Here it is necessary to define that a secondary activity is one that is not part of the company's main skills. Among these types of activities are the physical surveillance of the company, its cleaning, the supply of stationery and documentation, the management of events and conferences, the administration of dining rooms, among others.
- Outsourcing of production Outsourcing of the transport system Outsourcing of the activities of the sales and distribution department Outsourcing of the supply process
It can be seen that Outsourcing can be total or partial.
Total Outsourcing: Involves the transfer of equipment, personnel, networks, operations and administrative responsibilities to the contractor.
Partial outsourcing: Only some of the above items are transferred.
AREAS OF THE COMPANY THAT SHOULD NOT GO TO OUTSOURCING
Regarding the activities that should not be subcontracted are:
The Administration of strategic planning.
The treasury
Control of suppliers
Quality management
Customer service
Distribution and Sales
OUTSOURCING STRATEGIES… KEYS TO DEVELOP IT EFFECTIVELY.
When a company decides to carry out an Outsourcing process, it must define a strategy that guides the entire process.
There are two generic types of Outsourcing strategy: peripheral and central.
Peripheral occurs when the company acquires activities of little strategic relevance from external suppliers.
The central occurs when companies contract activities considered of great importance and long duration to obtain success.
Said strategy must be clearly defined in such a way as to ensure that the process is governed by the company's Outsourcing guidelines. It must be known to the employees involved in this process and supported by senior management. A strategy of this type allows employees to know the reasons why they should outsource and when to do it.
Another aspect to be defined is the type of relationship between the contracting company and the supplier. In this relationship there are two components: an interpersonal one that establishes how the responsible team within the company interacts with the supplier's team and the corporate component that defines the interactions at the managerial level between both parties.
Companies are reevaluating and changing the relationships between the parties to an outsourcing. Currently, organizations are looking for more formal and long-term relationships where the internal team assumes a strategic partner role, which allows a better understanding of the development of the supplier's strategy.
The advantage of this type of relationship is that it allows both parties to become familiar with the staff and operating style of the other company and helps the supplier to meet the expectations of the contractor more effectively in terms of communication and frequency of reports.. All of this results in a more bearable and beneficial relationship as long-term pricing considerations can be achieved in response to a guaranteed annual workload.
Another key is the measurement of the performance of the selected supplier in terms of time, adherence to the budget and the success of the project measured based on the achievement of the objectives set. If performance levels cannot be measured numerically, subjective measurement scales can be created with a range from poor to excellent.
It is advisable to share the results obtained with the supplier, especially if you want to have long-term relationships. Let the supplier know that sharing these results is not a form of punishment or claim but rather in order to look for areas for improvement. In the same way, it is beneficial to ask the supplier how the contracting company can be a better client so that there is mutual help and it is shown that the contractor wants improvement in both parts.
The Outsourcing strategy must define the Outsourcing team, establishing the minimum necessary skills. A team of this type is generally made up of people from commercial, technical and financial areas, among others, however the composition of the team varies depending on the scope of the project.
Lastly, the strategy must be finalized by involving not only the CEOs but also experienced managers in Outsourcing projects who can provide the operational aspects of the strategy.
BASIC POINTS TO ACHIEVE A SUCCESSFUL OUTSOURCING .
To achieve a good result in the Outsourcing process, three main aspects must be considered : The review of the company's structure, the determination of the activities to outsource and the selection of suppliers.
- Review the structure of the company.
Four basic points can be identified for a company to have the appropriate structure.
Have good administration of the supply process.
The Outsourcing process must have a defined mission: to increase the value of the product perceived by consumers. A successful sourcing strategy design is about making the most of the organization's core strengths or skills and outsourcing everything else.
Determine core skills and identify bottlenecks.
One of the key steps for a company to achieve a successful Outsourcing process is to identify which of the activities it carries out are the central or main ones for the business. These are generally those in which you have an advantage over your competitors, be it better technology, better quality, lower costs, etc.
Change the organizational culture.
An important step in the Outsourcing process is to ensure that the members of the organizations understand the fundamentals of this separation of activities, as well as the reasons that lead to it and the benefits it can bring to the company.
Have the appropriate information technology.
Once the basic points for Outsourcing have been established, it is important that the company has the necessary technology to be able to maintain a relationship of this type.
- Determine which activities to apply Outsourcing to and which ones not.
Within an organization there are various types of activities that depending on their nature may or may not undergo an Outsourcing process.
Within the activities of a company there are strategic activities, highly profitable and routine and / or support.
The first two activities should be kept internally more, the last one is recommended to be outsourced.
Three criteria can be identified to determine the activities to be subcontracted, these are:
- Resource-intensive activities.
Through this technique, companies can enter a new market without the need to immediately incur considerable investment in equipment. Some use this technique seeking to increase their efficiency and reduce costs.
- Activities that use specialized services.
Outsourcing offers companies great flexibility in their systems, as they can count on the support of a specialized third party that can better adapt to market changes.
- Relatively independent activities.
One way to identify activities that are not part of the core skills of a company is to observe those tasks that are relatively independent from the other functions of the company.
Regarding the activities that should not be subcontracted are: the Administration of strategic planning, treasury, supplier control, quality administration and the supervision of customer satisfaction and regulations such as: product responsibility, quality, environmental regulations, hygiene, personnel safety and public safety.
- Select provider .
Certain steps to be taken in selecting a supplier can be mentioned.
- Analyze the cost / benefit ratio.
If a positive result is obtained, that is to say that the supplier can carry out said activity at a lower cost and with equal or higher quality, it means that the company has managed to identify an activity that is not part of its main skills. When the result is negative, that is, that a supplier presents a general cost greater than that obtained by the company, two things can be deduced:
The company tries to disintegrate an activity that is part of its core skills and / or
The supplier selection is poor and the supplier does not have sufficient capabilities to offer the service to the company or the activity is not part of their core skills.
- Select providers carefully.
When selecting a supplier, companies must look for suppliers that focus on the industry in which they are located, and they must also understand the management of the products to be outsourced.
- Create a strict, written contract
As attractive and beneficial as it may seem, it should not be forgotten that outsourcing is delicate, important activities for the company are being placed in the hands of third parties that can harm the interests of the company if they are not adjusted to its needs. This is why one of the basic points when seeking to subcontract is to have a written contract, which is clear in establishing all the necessary points for the third party to comply with the delivery of the product and / or service as well as with the characteristics required by the company. Having chosen the right supplier for the decommissioning, the company must establish the goals and costs of the outsourcing project.
THE RISKS OF OUTSOURCING.
The risks involved in the Outsourcing process go from being operational risks to strategic risks .
Operational risks affect more the effectiveness of the company
Strategic risks affect its management, its culture, shared information, among others.
The main outsourcing risks are:
Not negotiating the right contract.
Inadequate selection of the contractor.
The company may be left halfway if the contractor fails.
Increase the level of dependence on external entities.
No control over the contractor's personnel.
Increase in the cost of negotiating and monitoring the contract.
Rejection of the Outsourcing concept
By delegating a service to an external provider, companies are allowing it to figure out how to get out of it and keep the profits.
One of the most important risks of Outsourcing is that the selected supplier does not have the capabilities to meet the objectives and standards that the company requires.
LEGAL ASPECTS OF OUTSOURCING
When considering the negotiation of an Outsourcing contract, certain aspects must be taken into account such as:
Initial decisions:
a) Is it appropriate, for confidentiality reasons during negotiations, to draw up a separate nondisclosure agreement with each of the potential suppliers?
b) Define which systems and / or services are to be subcontracted.
c) Confirm the financial viability of the provider. Does the client require a performance guarantee or specific actions on the provider's insurance coverage or compensation from the provider's parent company?
d) Who will initiate the preparation of the contract, the supplier or the customer?
e) What resources should be used in the preparation and / or negotiation?
For example:
- Functional management Technical expertise Contract management Internal legal advice External legal advice
f) Decide the start date for the contract.
g) Decide the transition date for the start of the Outsourcing services.
h) What will be the duration of the Contract?
- Define Terminology
a) Define the appropriate terms for this particular Outsourcing agreement, for example, services and level of services.
b) Have key activities been identified and quantified?
c) Identify the establishments where the services will be performed.
d) Identify the equipment that will be used to provide the services.
e) Identify the software that will be used for the services if computer technology is to be outsourced.
- Structure of the Contract:
a) Would it be appropriate to integrate invitation to tender and response to tender documents into the contract, or has the situation changed since the documents were prepared?
b) Is there going to be a single contract or will it be more pertinent to have multiple contracts?
c) The latter could be a practical way to structure the contract if it can be divided into defined stages, such as Outsourcing of operational services followed by the development of new services. or whether an asset transfer will be part of the agreements.
- Personal:
a) Will some members of the client's current staff form part of the Outsourcing arrangement, and if so, by temporary transfer, redundancy or permanent transfer?
b) Are the regulations on business transfer (employment protection) applied?
c) What is the degree of compensation of each party in case of related claims on employment issues?
- Premises and Facilities:
a) Where will the contract be made, at the supplier's or client's facilities?
b) Would facilities requiring a different property contract be sold or rented to the supplier?
c) Should a sale, lease or occupancy license be negotiated?
- Hardware Equipment:
a) Is the supplier responsible for providing the equipment for the operational operation of the services in its own facilities?
b) Will the supplier use the customer's equipment at the customer's premises?
c) Will equipment be transferred from the customer's premises to the supplier's?
In that case. Has responsibility been defined to ensure that all permits and licenses are obtained from third parties who have a legal interest in the equipment?
d) Is a separate contract necessary to direct the transfer of ownership?
e) Will a formal appraisal be required?
f) Who will be responsible for the insurance?
g) Who will be responsible for the maintenance arrangements and payments?
h) Will a separate contract be required for maintenance?
- Software:
a) Will the supplier be using Software for the supplier to use in outsourcing?
If so, is the client licensing their own software for use by the provider in outsourcing?
b) Has the provider obtained licenses for the use of third-party software?
c) Is the provider using its own software to supply the services?
d) Who will own the rights to the software that is developed in the Outsourcing arrangements?
- Terms of charges and payments:
a) How are service charges calculated?
b) Can volumes be produced and controlled accurately enough to make a fixed charge viable?
c) Will charges for time and materials be made?
d) In the accounting of "open books" an option, supplier costs plus agreed utility?
e) Are charges directly related to performance at the service level?
f) What are the charges to include and exclude, are subordinate charges and services charged separately? Are expenses charged separately?
g) Will there be a discount system for non-compliance with service levels that are not within the agreed criteria?
h) Will there be any limitation on variations in the levels for charges to be paid?
i) Will there be any development work and how is it going to be uploaded?
j) Do the charges allow changes in services?
k) How often will changes be reviewed?
l) Are there any limitations in the criteria for the review, such as the retail price index, computer salary studies, etc.?
m) Is there any chance that charges will decrease over time?
n) What will the payment methods do?
Identify the responsibilities of the supplier:
For example:
* Assistant in the evaluation of service levels.
* Meet service levels
* Appoint a representative.
* Regularly review the outsourcing arrangements.
* Comply with the client's standards regarding hygiene and safety.
- Identify customer responsibility:
For example:
a) Who will attend the meetings?
b) What will be the special procedures for problems not resolved in meetings?
c) Will there be provisions for independent audits of the system?
- Security:
a) Is confidentiality necessary in the performance of contracts?
Yes, as part of the Outsourcing arrangements, identifiable living personal data of individuals are being processed electronically. Is the provider prepared to give a guarantee of data protection compliance?
OUTSOURCING TRANSITION STAGE
CRITICAL SUCCESS FACTORS IN AN OUTSOURCING TRANSACTION
- Clarity of Objectives:
The most important element in the long-term success of an outsourcing relationship is the clarity of objectives. The client must have very defined the goals that are intended to be achieved with the Outsourcing and as or even more important, they must be adequately outsourced, the supplier having committed to be measured in their performance based on them.
- Realistic Expectations:
Outsourcing is a means, a tool, not a person. It is therefore important to set the border within the limits of what is possible, in principle many times violated in the desire of the supplier to tie up the business and the client to solve their operational problems with a magic wand. The extensive track record of Outsourcing well exploited. it helps to keep the expectations of both parties firmly anchored within the achievable. There is already a knowledge base resulting from the experiences of the industry in the latest designs. That allows to clearly establish the chances of success of an Outsourcing transaction based on the current conditions of both the client and the supplier. This should be the parameter that sets the expectations of both sides when entering an Outsourcing relationship.
- Customer Commitment:
Like any sophisticated business tool, Outsourcing requires highly qualified resources from the client, who can exploit its potential benefits through appropriate management and supervision functions: It is important to emphasize here the delicate balance between macro-management and micro-management of the supplier of Outsourcing by the client. Macro-management leads the client to not allocate enough resources to supervision and control of the provider, leaving the latter adrift in terms of operational guidelines, while micro-management leads the client on the one hand to eat up the expected savings in IT infrastructure, by creating a neo-bureaucracy of administrative control dedicated to the management of the relationship: on the other hand, and even more seriously. tie the provider's hands,constrained by a flood of administrative requirements that prevent it from implementing the streamlined procedures on which its promise to the customer of operational efficiency and economy of scale was built.
- Detailed definition of the Portfolio of Services Included:
In many constraints the provider tends to be explicitly vague about the portfolio of services included in the basic cost of an outsourcing transaction. Furthermore, this vagueness is often used successfully as a customer penetration strategy: the customer is won over with artificially low prices and then gets the secret letter of fattening the future business: once the contract is signed and the transfer of operations to the provider begins the litany of exceptions or services not included, which originate countless additional charges to avoid this almost endemic evil is extremely important the clear and precise definition of all services included. an Outsourcing transaction. The more accurate a priori, the fewer surprises a posteriori.When they are a guarantee of the attitude of a business relationship, which can dangerously affect critical customer operations.
- Adequate definition of Service Levels and Models:
The minimum criteria for the location of the services provided as part of the Outsourcing transaction between the parties are included in this item. Each service must have associated both the adopted delivery model, as well as the parameters of acceptance and measurement of its performance. Thus, the progress of the relationship can be monitored by a battery of indicators, which serve both to show the success of the transaction and to take pre-sales and / or corrective measures in the event that some services show trends towards degradation, before being converted. in critical problems.
- Financial flexibility:
The success of any Outsourcing transaction is based on the economic benefit of both parties as a preventive measure against changing situations, every transaction must incorporate sufficient financial flexibility to adapt to changing conditions that may affect the total cost of the commercial relationship between both. parts, in order to guarantee in some way the economic benefit originally sought.
- Supplier Commitment:
One of the strongest competitive advantages of Outsourcing is the availability by the provider of highly qualified resources to solve operational problems in the client's IT infrastructure. As such, the provider must commit to maintaining promised availability throughout the relationship. Avoiding excessive staff turnover, as well as the use of long-term clients as a school for their professional cadres, with their subsequent resignation to new clients. Like any successful business relationship, it is necessary to guarantee a continuity and minimum quality on the part of the supplier in the human resources assigned to the attention and fulfillment of the contracted commitments.
- Managerial Compliance:
The success of any long-term project depends largely on the continuity of the management team responsible for it. In the case of Outsourcing, this requirement is further accentuated, since the general conditions of the transaction are set just before the formal beginning of the relationship, at the time of negotiation and signing of the service provision contract. From there, the success of the transaction depends on proper interpretation and monitoring of the clauses established in the contract, it is essential that the management teams responsible for the project on both parties are fully involved in the contractual negotiations, in order to carry out the relationship the spirit of the contract. This is certainly an important guarantee for the success of the long-term relationship.
- Technological Flexibility:
We all know that technological innovation is the modus operandi in the world of computing. At the same time, Outsourcing transactions are generally expressed in a long-term service provision contract. so. To avoid problems caused by technological obsolescence not foreseen in the original transaction, it must incorporate definitions and procedures for technological updating. As well as basic criteria for the evaluation and incorporation of new technologies into the services provided, such safeguards guarantee one of the basic promises of Outsourcing, technology, managed by experts, yielding real benefits to the business.
- Operational Flexibility:
One of the most important objectives of Outsourcing is to professionalize the client's computer operation, beyond formal commitments and exact definitions of services provided, the expected result of an Outsourcing solution is generally, the improvement and efficiency of the operation due to the variety of situations and changes in operating conditions that may occur during the course of the relationship, it is very important that the original transaction incorporates sufficient elements of flexibility that can be used later to change the operating terms. or even the definition of the services provided, without the need to resort to tortuous renegotiations of the contract.
METHODOLOGY FOR THE EVALUATION OF A COMPANY'S OUTSOURCING.
The Outsourcing methodology is essentially the incorporation of good practice in managerial decision making. The decision to outsource needs to be subject to an appropriate administrative process and not simply made, as is the case with many other decisions, on financial or technical grounds.
What this methodology does is help plan, help set expectations, both within the organization and abroad, and indicates those areas where the organization needs specialized knowledge.
Methodology Steps:
¨ Phase O: Start
¨ Phase 1: Evaluation.
¨ Phase 2: Planning.
¨ Phase 3: Hiring.
¨ Phase 4: Transition.
¨ Phase 5: Administration.
For each of the phases the following questions will be answered:
- What does the Phase do?
- How long should it take?
- Who participates?
- What is delivered?
- What decision is made?
Below we explain each of the phases:
PHASE "0" - START
THAT MAKES?
Identify the scope of what you are considering for Outsourcing, Establish the criteria, the important marks, initials and the factors "forward / high" for the initial decisions. It allocates initial resources to “put the seeds” of the project.
HOW LONG?
Two to four weeks.
WHO IS PARTICIPATING?
This phase is initiated by the executive manager or a board member sponsoring the feasibility study.
WHAT IS DELIVERED?
A document that sets out the scope of the project and administrative issues.
WHAT IS SAYING?
Examine (or not) the strategic benefits.
PHASE “1” - EVALUATION
THAT MAKES?
Examine the feasibility of Outsourcing; defines the scope and limits of the project and reports on the degree to which the project meets the established criteria.
HOW LONG?
Four to six weeks.
WHO IS PARTICIPATING?
A small team led by the sponsor, at least one manager of a function (eg finance or human resources), who is not personally affected by the outcome of the assessment.
WHAT IS DELIVERED?
A feasibility or other study (see content list). A decision about whether or not to proceed to the planning stage.
WHAT IS SAYING?
Decision about whether to proceed or not.
PHASE “2” - DETAILED PLANNING
THAT MAKES?
Set the criteria for the tender, define the requirements in detail, and prepare a short list of invitations for the contest.
HOW LONG?
Eight to ten weeks.
WHO IS PARTICIPATING?
The team formed during phase 1, plus 1 purchasing representative (procurement or contracts), from the legal and human resources department, in case they are not represented.
WHAT IS DELIVERED?
In the bidding process plan, including documentation for the bidding, description of services, drafts according to the level of service and a strategy for negotiations with suppliers.
WHAT IS DECIDED?
Who is invited to participate, under what criteria and performance measures.
PHASE "3" - CONTRACTING
THAT MAKES?
Select a preferred contractor as a result of a bidding process. Identify a backup provider.
HOW LONG?
From three to four months.
WHO IS PARTICIPATING?
The core team of the planning phase. may include external advisers. Contractors and their partners will participate.
WHAT IS DELIVERED?
Invitation to compete: Service level agreements, the headings of the agreement. Contracts Service transfer plan to subcontractors.
WHAT IS DECIDED?
The award of the contract. To whom, for what service, for how long, with measurement criteria.
PHASE “4” - TRANSITION TO THE NEW SERVICE
THAT MAKES?
Establishes the procedures for the administration of the outsourced function. Transfer formal responsibility for operations. Transfer personnel and assets as agreed.
HOW LONG?
Two to three months.
WHO IS PARTICIPATING?
The core team and the function manager of the outsourced function. Human Resources, users, management and staff of the supplier.
WHAT IS DELIVERED?
A transition plan. Documentation of administration and review procedures. Delivery of formal responsibility to the subcontractor.
WHAT IS DECIDED?
Termination procedures. Service delivery date.
PHASE “5” - ADMINISTRATION AND REVIEW
THAT MAKES?
Review the contract on a regular basis, comparing it against the agreed service levels. Plan negotiations to take into account changes and additional requirements.
HOW LONG?
From one to five years, depending on the length of the contract. Typically three to five years.
WHO IS PARTICIPATING?
Contractor representative responsible for service delivery, User role representative, responsible for contract and supplier administration.
WHAT IS DELIVERED?
A managed service. Regular reviews. Absence of surprises.
WHAT IS DECIDED?
Annual verification of the validity of the original evaluation. Decision on the continuity of the contract.
HISTORY OF OUTSOURCING IN THE DOMINICAN REPUBLIC
One of the first companies in our country to implement Outsourcing was CODETEL (Dominican Telephone Company), beginning in 1996.
During its beginnings, CODETEL faced numerous problems, due to the fact that it did not carry out the necessary studies for its implementation, in addition, it had to face, jointly, the radical changes that occurred in technology, when moving from the analog to the digital era.
Other negative aspects were:
The lack of constant monitoring and evaluation that the process required, after its implementation, to take corrective measures.
The reduction of personnel, in a massive way and without compensation packages.
The definition of the contractual terms, which have caused them lawsuits by the employees of the Outsourcing companies, for having done business with individuals and not with legally constituted companies.
Positive aspects:
The massive reduction of positions that were not necessary, with the entry of new technology.
Reduction of operating costs and personnel expenses.
All these measures allowed them to face more effectively the entry of new telephone companies to the country, concentrating mainly on the essentials of the business.
Currently, most of its areas are managed by Outsourcing, with great efficiency.
León Jimenes Group.
An important company in our country that has adopted this strategy since the beginning of 1996. After having carried out numerous studies, as well as Benchmarking with other companies that were applying it successfully, such as the Dominican Telephone Company (CODETEL).
By the year 2000, the company already had the following areas under Outsourcing:
- Security - Carpentry
- Airport shuttle service - Gardening
- Promoters and promoters - Cleaning
Currently, it has Outsourcing services in other departments, such as:
Human Resources
Marketing
Purchases
Finance
Production
One of the main obstacles of the process was the job insecurity created in the personnel, another factor was the lack of experience, when entering this field for the first time. In addition, the number of suppliers that met the requirements was very limited.
As a consequence of a reorganization process, in 1997, a large number of employees were left, as well as middle and high-level executives as a result of a downsizing or flattening of the organizational structure.
Due to Outsourcing and restructuring, approximately 600 employees have left the company to date.
In general, the company has obtained very good results, which have been improving over the years.
In terms of costs, the reduction has been very significant, reaching savings of more than RD $ 10,000,000.00 in three years.
One of the reasons that most influenced the success of the process was the treatment given to the staff, who received their employment benefits, additional compensation, medical insurance and others. In addition, they received orientation and advisory services, in order to advise them on the management of resources, help them face reality and how to become small entrepreneurs. As a result of this work, for a month, 98% of the employees who had left the company were already relocated to other jobs.
For the employees who remained in the company, the decision to implement outsourcing in the company was not well accepted initially, due to the uncertainty that it creates in its path, which causes a demotivation.
Most of the employees recognize that the transition process was very painful, although the company offered good treatment to the affected employees. In addition, they consider that this process affected quality, since the work, in the beginning, was not equal to that of previous employees.
Companies that offer Outsourcing in the Dominican Republic
Ingcosol.
It began its operations in 1988, offering engineering and construction services for homes for sales, in the maintenance area it began in 1996, with the restructuring process that CODETEL underwent in that year.
Their offices are located in the city of Santiago, although they have employees scattered throughout the country.
It offers the services of:
Gardening, general cleaning, plumbing, painting and others.
At present it has approximately 178 employees, throughout the country, only in the maintenance area.
Among the companies to which it offers services are:
CODETEL
central bank
Dominican National Brewery, c. by a.
Cervecería Bohemia, SA
León Jimenes Tobacco Industry
The success of your company, in outsourcing, is based on maintaining effective communication, as well as prompt service and the application of corrective measures.
AMBERLAND INTERNACIONAL, SA
It began its operations in the country in 1997 in Santo Domingo, and then expanded by opening a branch in Santiago in 1999.
LOCATION: AV. JUAN PABLO DUARTE, SANTIAGO.
OBJECTIVE:
Provide a good service with high efficiency and effectiveness to obtain as many customers as possible.
SERVICES OFFERED:
- CREDIT CARD COMPULSIVE CHARGES RECRUITMENT AND SELECTION OF PERSONNEL
COMPANIES TO WHICH THEY OFFER SERVICES:
- BANINTERBANCREDITBANCO GLOBALBANCO MERCANTILUNION FENOSAO & M SOLUCIONES
The number of employees it has throughout the country is approx. Four. Five.
SOLUTION
Company of Spanish origin, began its operations in the country, in 1999.
LOCATION: PLAZA LOPE DE VEGA, SANTO DOMINGO
SERVICES OFFERED:
- ELECTRICAL CONSULTANCY MAINTENANCE ENVIRONMENT
COMPANIES TO WHICH THEY OFFER SERVICES:
- EDENORTEEDESURGENERADORAS ELECTRICAS
COBRA
Company of Spanish origin, began its operations in the country in 1981.
It has its main offices located in Santo Domingo and Santiago.
SERVICES OFFERED:
- ELECTRICAL RECONNECTIONS ELECTRICAL POWER SUPPLY FRAUD LOCATION TELECOMMUNICATION SERVICES
COMPANIES TO WHICH THEY OFFER SERVICES:
- EDENORTE
- EDESUREDEESTE
The number of employees it has throughout the country is approx. 400.
ADECO
Its function is oriented to the recruitment and selection of personnel, to satisfy the personnel demands required in the market, in some specific areas. It has its main offices located in Santo Domingo and another in Santiago.
SERVICES OFFERED:
- COUNSELING
- SECURITY SECRETARIES MERCHANDISING RECEPTIONISTS ACCOUNTING ASSISTANT
FIELD STUDY ON OUTSOURCING IN SANTIAGO DE LOS CABALLEROS, DOMINICAN REPUBLIC.
Statistics have long become an effective method for accurately describing economic, political, social, psychological, biological, and physical values, and it serves as a tool to relate, describe, and analyze data. Once the data is tabulated, we can know some characteristics about the behavior of the event or event under study that allow us to know or improve the knowledge of said event. This gives us the possibility of making correct and timely decisions, as well as making projections of the behavior of the event.
For this reason, this group has used this powerful tool to statistically analyze the behavior in some aspects of companies from Santiago in the strategic use of outsourcing.
To study the behavior of the aspects, a repetitive random sample of 10 medium and large companies from the city of Santiago de los Caballeros was taken, which will be the representation of the population.
Let's see, then, what information the sample gives us as expressed by the survey.
POLL
1.- In what areas do you implement outsourcing?
- Consulting, Maintenance, Manufacturing, Transportation, Human Resources, Information Technology, Training, Surveillance and security, Design and Construction.
2.- Indicate what measures are taken in case of deficiencies by the subcontracted company:
- Offer technical, logistical or administrative assistance Warning Cancel the contract Legal claim for breach of contract Ignore what happened Negotiation between the parties
3.- Indicate the level of control carried out on the contracted company (s):
- High Medium Low Occasional None
4.- What is the minimum experience required of a subcontractor company?
5.- What percentage of reduction has outsourcing represented for the company?
6.- Indicate the degree of customer satisfaction after the implementation of outsourcing:
- High Low Medium None
7.- What environmental influences caused the implementation of outsourcing in your company?
- Improve conditions against competitors Increase in operating costs Government economic policy Lack of infrastructure Reduction of personnel Technological advances Satisfy market demands Simplify company administration
8.- What does the company do with the personnel affected by outsourcing?
- Termination of the employment contract Transfer the employee to the subcontracted company Use their experience and capacity in more productive areas of the company.
9.- Indicate the reasons for the rejection of subcontracting in some departments of the company.
RESULTS OF THE TEST
| Outsourcing implementation areas | ||
| advisory | 7 | 18.42% |
| Maintenance | 4 | 10.53% |
| Manufacture | one | 2.63% |
| Transportation | 4 | 10.53% |
| Human Resources | two | 5.26% |
| Computing | 5 | 13.16% |
| Training | 8 | 21.05% |
| Surveillance | 5 | 13.16% |
| Design and construction | two | 5.26% |
| TOTAL | 38 | 100.00% |
| Measures taken in case of deficiencies by the subcontracted company | ||
| Technical, logistical or administrative assistance | 8 | 36.36% |
| Admonition | 4 | 18.18% |
| Termination of the contract | one | 4.55% |
| Legal claim for breach of contract | two | 9.09% |
| Ignore what happened | 3 | 13.64% |
| Negotiation between the parties | 4 | 18.18% |
| TOTAL | 22 | 100.00% |
| Levels of control over subcontracted companies | ||
| Tall | 6 | 60.00% |
| Medium | 4 | 40.00% |
| Occasional | ||
| None | ||
| TOTAL | 10 | 100.00% |
| Degree of customer satisfaction | ||
| Tall | 6 | 50.00% |
| medium | 6 | 50.00% |
| low | 0.00% | |
| none | 0.00% | |
| TOTAL | 12 | 100.00% |
| Influence of the environment | ||
| Competition | one | 5.00% |
| Increased costs in the market | 3 | 15.00% |
| Government economic policy | 0 | 0.00% |
| Lack of infrastructure | 3 | 15.00% |
| Staff reduction | 3 | 15.00% |
| Technological advances | two | 10.00% |
| Market demands | two | 10.00% |
| Simplify business administration | 6 | 30.00% |
| TOTAL | twenty | 100.00% |
| What is done with the personnel affected by outsourcing | ||
| Termination of employment contract | 0 | 0% |
| Transfer employees to outsourced company | 3 | 33.33% |
| Transfer them to other areas of the company | 6 | 66.67% |
| TOTAL | 9 | 100.00% |
| Why Outsourcing Is Rejected | ||
| cost | two | 15.38% |
| Staff refusal | one | 7.69% |
| Fear | 3 | 23.08% |
| Dismissal of employees | two | 15.38% |
| Information leakage | two | 15.38% |
| It is not necessary | two | 15.38% |
| Decrease in profits | one | 7.69% |
| TOTAL | 13 | 100.00% |
INTERPRETATION OF DATA
ENVIRONMENTAL INFLUENCE: What environmental influences caused the implementation of outsourcing in your company?
Let's look at this histogram, by itself it doesn't tell us something conclusive, but if we see the intrinsic relationship that exists between its components, we will realize the real reasons why the companies surveyed in Santiago make use of outsourcing.
If we look at the lines of simplifying administration, the lack of infrastructure, technological advances, market demands and competition have a close and primary relationship for reasons of profitability. That is, 70% of the sample indicates that the reasons why outsourcing is implemented is given by the quality of the service, the improvements in operational performance, the improvement in the image of the organization vis-à-vis the market and its competitors, and improvements in control and administration.
While the lines of cost increase in the market and personnel reduction are related for cost reasons, which indicates that cost reasons are relegated to the background with a percentage of 30%.
With 0.00%, the government's economic policies are in third place, these being no incidents in the application of this strategy.
IMPLEMENTATION AREAS: In which areas do you implement outsourcing?
In this section, the sample, selected randomly, shows a behavior inclined towards counseling. We find that the lines of training, consulting, information technology, human resources, design and construction have a fundamental relationship in the field of consulting, which indicates that consulting predominates with 63.15%, while in a second place the areas surveillance with 13.16%.
The remaining 23.69% is distributed among the areas of maintenance with 10.53%, transportation with 10.53% and manufacturing, relegated to the bottom with 2.63%.
PERSONNEL AFFECTED: What does the company do with the personnel affected by the subcontracting?
67% of companies place their employees in other areas of the company or in the same area as supervisors, and 33% are transferred to the sub-contracted company. 0% of the companies terminate the employment contract, which indicates that this administrative strategy is not a cause for dismissal in the surveyed companies.
MEASURES TAKEN IN CASE OF NON-COMPLIANCE: What measures are taken in the event of deficiencies by the sub-contracted company?
Observing the primary relationship of the components of this histogram, we realize that technical assistance with 36.36% added to the negotiation between the parties with 18.18% have a very close relationship of concepts. In other words, with a total of 54.54% of the sample, it can be seen that there is some friendly contact between the requesting company and the offering company seeking to obtain improvements or a good solution to the situation.
The legal demand and the termination of the contract determine that in 13.64% of the cases the implicit partnership between the contractor and the contractor leads to the termination of the relationships. 18.18% exercise the right to admonish and 13.64% continue with the process without taking corrective measures, which leads us to infer some statements about this part:
- There is a bad supervision system The contract was not well defined There is irresponsibility on the part of the contracting company.
REASONS FOR REFUSAL OF OUTSOURCING IMPLEMENTATION:
Indicate reasons for refusing outsourcing in some departments of the company
The management of some areas of the companies are outsourced, but others are not, for multiple reasons as can be seen in the previous graph. The fear (of losing the business image before the market and before the competitors, the structure of the processes), the leakage of information (information traffic with the competition), the dismissal of its employees, and the rejection of the existing personnel in the companies are interrelated, which implies that 61.53% are afraid of implementing outsourcing in certain areas. Meanwhile, the cost of implementation and the decrease in profits make up an economic reason, so 23.07% do not use this strategy for economic reasons.
Finally, 15.38% consider that applying outsourcing in some areas of the company is not necessary.
The objective of these statistical information is to show you the reality or the behavior of the events, and we have confirmed it: OUTSOURCING is your strategic solution.
CONCLUSION
It can be said that there is a very marked trend towards the practice of Outsourcing in companies worldwide.
More and more organizations seek to achieve greater efficiency at a lower cost, without neglecting the required quality and customer service standards.
Like any administrative process in Outsourcing, planning, organization and analysis activities are involved that respond to specific learning objectives, aimed at discovering, using and adapting new strategies for the various areas of the organization.
When getting involved in an Outsourcing process, companies must clearly define a strategy that guides the entire process and contains the important aspects in its development.
Some of the potential benefits of using Outsourcing are lower costs, a more dedicated focus on competitive activities of the company, greater flexibility and speed of response, as well as the use of world-class technology and materials. On the other hand, there are some possible disadvantages, such as the decline in innovation by suppliers, loss of control of the production process and eventual competition from them, who, by knowing the process fully, go from being suppliers to competitors.
Organizations are currently looking for a new way to increase their income, achieve effective costs in services and share ideas with consumers… Outsourcing is the optimal tool for this.
BIBLIOGRAPHY
- http://www.outsourcing-faq.com/htmlhttp://www.todolaburo.comwww.firmbuilder.com. Outsourcing - Firmbuilder.com: Outsourcing Strategy: Managing Strategic Riskhttp: //alumnos.itam.mxwww.findarticles.com: Keys to developing an effective outsourcing strategywww.firmbuilder.com. Outsourcing - Firmbuilder.com: Outsourcing impacts both The customer Chain and the Supply Chain www.firmbuilder.com. Outsourcing - Firmbuilder.com: Outsourcing helps frims to focus on core competencieshttp: //www.geocites.com/altuve.geo/edu/outaourcing_faq.htmlhttp: //www.canacintra.org.mex/canacintra/serv/mbol.htmHarvad Business Review. November- December 1992. Strategic Sourcing: To Make or Not To Make www.findarticles.com: Time and Cost push outsourcing boom www.findarticles.com: The ABCs of outsourcing.www.findarticles.com: Leading Laterally in Company Outsourcing www.firmbuilder.com. Outsourcing - Firmbuilder.com: Reingineering or Outsourcing? Rothery, Brian and Ian Robertson, “OUTSOURCING”. Outsourcing. Editora Limusa, 2nd edition, 1997 Field Study, carried out by the group in charge of this work.
